United States Gross Domestic Product, by sector, 1947 to 2016
Canada and the US continue to undergo rapid deindustrialization. Our economies are increasingly service-based, and that should worry us.
The graph above looks complicated, but the key idea is contained in two trends. And both are negative. First, note the declining contribution manufacturing is making to United States (US) Gross Domestic Product (GDP). The red, dotted line shows manufacturing’s percentage contribution.
Manufacturing now makes up just 12 percent of US GDP, and less than 10 percent in Canada. The decline of manufacturing is even more evident when we look at employment rather than GDP. According to the US Bureau of Labor Statistics, goods-producing industries (manufacturing, mining, construction, agriculture, etc.) now employ roughly 15 percent of America’s working population. Nearly 85 percent are employed in the service sector. The situation is similar in Canada. According to Statistics Canada data , approximately 77 percent of Canadian workers are employed in the service sector, and this percentage continues to rise. Both nations continue to deindustrialize.
Second, note the rise in the importance of three service sectors: 1. Finance, insurance, real estate, and rentals (the broad blue line); 2. Professional and business services (green line); and 3. Education and healthcare (red line). A US economy built upon General Motors, General Electric, and U.S. Steel has given way to one built upon JPMorgan Chase, Walmart, and UnitedHealth Group.
Note, especially, the blue line: finance and real estate. With the 2008 financial crisis still fresh in our minds, and its effects still resonating through global economies, it should worry North Americans that banking and real estate have replaced manufacturing as the one of the largest economic sectors.
Manufacturing is declining, our energy sectors may have to contract as we deal with climate change, most North American fisheries have been depleted and agriculture seems to need fewer farmers and workers each year, low-wage nations continue to claim Canadian and American jobs, and we’re told that the robots are coming. By mid-century there will be more than 450 million people living in Canada and the US. Every politician in every party and every engaged citizen should be asking the same question: what are nearly half-a-billion North Americans going to do for a living?
We are not doomed to decline, but decline will be our lot unless we actively engage in a collective democratic effort to build a new, sustainable economy for North America.
Canadian agri-food exports and imports, 1970 to 2015
The local food movement is important—a grassroots force for positive change. People are increasingly aware of the benefits of eating local food and more are demanding it. That said, it would be wrong to think that we are localizing our food system. Just the opposite. The most powerful players are putting their money and influence behind the project of globalizing and de-localizing our food supply. Our food has never been less local.
In early-April, Canada’s federal government announced an ambitious new target for higher agri-food exports: $75 billion by 2025. Unfortunately, as exports increase, so will imports. We’re maximizing food miles.
The graph above shows Canadian agri-food exports and imports. The units are billions of dollars, adjusted for inflation. The graph covers 1970 to 2015. A round circle highlights 1989, which marks the beginning of the modern “free trade” period. In 1989, we implemented the historic Canada-US Free Trade Agreement (CUSTA). Not long after, we implemented the North American Free Trade Agreement (NAFTA), and the World Trade Organization (WTO) Agreement on Agriculture. Other agreements have followed.
Since ’89, Canada has been very successful in finding export markets for Canadian grains, meat, processed foods, and other agri-food products. Exports have more than tripled. This is no chance occurrence. Governments and industry have worked together to drive up exports—repeatedly setting and meeting ever-higher targets. In 1993, for example, federal and provincial governments pledged to double agri-food exports to $20 billion by 2000. Next, they pledged to double exports again: to $40 billion by 2005. (This latter goal was actually suggested by the Canadian Agri-Food Marketing Council, an industry group that included representatives of Cargill, Maple Leaf, and McCains.) Just last year, the Canadian Agri-Food Trade Alliance—whose members include some of the world’s largest agricultural traders and processors—voiced strong support for new trade agreements: the Comprehensive Economic and Trade Agreement (CETA) and the Trans-Pacific Partnership (TPP). To support of this industry-led effort, the federal government has now pledged to help increase exports to $75 billion. While many citizens want local food, governments and agribusiness appear to want the opposite.
The trade agreements that pave the way for Canadian exports do the same for imports. Since 1989, Canadian food imports have more than tripled, to nearly $45 billion per year. With each uptick in exports comes a comparable increase in imports. If we reach our 2025 goal of $75 billion in exports, the trendlines in the graph above suggest that imports will rise to about $65 billion per year—on average, about $8,000 for a hypothetical family of four. That’s a lot of imported food. Especially in a food-rich nation such as Canada.
The preceding is not an argument against exports and trade, or even against food imports. But it is an argument against a simplistic fixation on exports. While exports have doubled and redoubled, farmers’ net incomes have stagnated or fallen, the number of Canadian farms has been reduced by a third, farm debt has quadrupled, many Canadian processing companies have disappeared, and our agricultural and food systems have become increasingly controlled by foreign corporations. Good agricultural policy must go far beyond a push to produce and export. And a sound national food policy must go far, far beyond such simplistic schemes.
Graph sources: Agriculture and Agri-Food Canada (AAFC): “Agri-food Export Potential for the year 2000;” and data from AAFC by request.
Passenger train use, kilometers per person per year (average), selected countries, 2014 or 2015 data
Not every problem has a clear solution. Here’s one that does. The problem is the exponential growth in air travel and attendant greenhouse gas (GHG) emissions. The solution is high-speed passenger rail.
Compared to airplanes, high-speed trains can move people faster, more comfortably and conveniently, more cheaply, and with a fraction of the GHG emissions. And Canada is uniquely placed to benefit from a passenger-rail renaissance; one of the world’s largest passenger-rail manufacturers, Bombardier, is a Canadian company.
Air travel is increasing exponentially. As I detailed in a previous blog post, air travelers now rack up about 7 trillion passenger-kilometres per year. And that figure is projected to double by 2030. If we are to retain a tolerable climate, most of the planes will soon need to be grounded, excepting perhaps those used for trans-oceanic flights.
While airplanes may remain our best option for crossing oceans, within continents higher-speed rail (130–200 km/h) and high-speed rail (200+ km/h) can move people faster and more comfortably. Such trains can transport passengers from city-centre to city-centre, eliminating the long drive to the airport. Trains do not require time-consuming, invasive airport security screenings. These factors, combined with high speeds, mean that for many trips, the total travel time is lower for trains than for planes. And because trains have much more leg-room and often include observation cars, restaurants, and lounges, they are much more comfortable and enjoyable.
Many people will know the Eurostar high-speed line that connects Paris and other European cities to London via the Channel Tunnel. Top speed for that train is 320 km/h. A trip from downtown London to Downtown Paris—nearly 500 kms—takes 2 hours and 20 minutes, about the time it takes the average North American to drive to the airport, check in, check baggage, clear security, and get to his or her airplane seat.
China recently inaugurated its Shanghai Maglev line, with a maximum speed of 430km/h and average speed of 250 km/h. Japan’s famous “bullet trains” went into service more than 50 years ago. They now travel on a network of 2,764 kms of track and reach speeds of 320 km/h.
North America has one high-speed line, the Acela Express that links Boston, New York, Philadelphia, Baltimore, and Washington. The maximum speed is 240 km/h, through average speeds are lower. Travel time from New York to Washington is 2 hours and 45 minutes, including time spent at intermediate stops: an average speed of 132 km/h. The Acela Express trains were built by a consortium 75 percent owned by Canada’s Bombardier.
This brings us to the truly good news: Canada is home to a world-leading passenger rail manufacturer, Bombardier. You will find the company’s rolling stock in the subways of New York, London, and more than a dozen other cities. Its intercity trains run throughout Europe, Asia, and North America. And its high-speed trains are currently moving passengers in China, Europe, and the US. Until a recent merger of two Chinese companies, Canada’s Bombardier was the largest passenger train manufacturer in the world. Canada has a huge opportunity to create jobs and economic activity while leading the world in low-emission, cutting-edge rail technology. As climate change forces Canada to scale back fossil-fuel production and maybe even auto manufacturing, Canada will need new economic engines. Passenger-rail manufacturing can be an economic engine of the future.
Not all the news is good, however. Many will have recent heard news reports about Bombardier. Over the past few years, Federal and provincial governments have provided cash injections to the company totaling more than a billion dollars, largely to cover costs on its C-Series passenger-jet program. Bombardier is in trouble. Indeed, it may have made one of the biggest business blunders in recent decades: financially imperiling a world-leading train maker to make a huge gamble on planes just as climate change forces us to ground the planes and build a trillion-dollar passenger rail system. Bombardier has recently announced that it may merge its train division with the German company Siemens.
Bombardier has been foolish. Canadian citizens and their governments have been equally foolish: handing over billions of taxpayer dollars and not receiving a single passenger train in return. But we can be smart. That means building a North American network of fast trains. Bombardier can prosper by being one of the main suppliers for that network. High-speed passenger rail can be a win-win-win: jobs for Canadians and Americans; fast, comfortable travel; and a high-tech, low-emission transportation system on this continent like the ones being built in Europe and Asia.
The graph at the top of this article shows average per-person passenger-train utilization. The data is from the most recent year available: 2014 or ’15. Passenger rail utilization rates in Canada and the US (an average of less than 40 kms per person per year) are among the lowest in the world. In China, average use is more than 800 kms per person per year and rising very rapidly. In many European nations, it is more than 1,000 kms per year per person—25 to 30 times the Canadian and US rates. There is huge growth potential for the passenger rail sector in North America.
Global freight transport, all modes, trillions of tonne-kilometres, selected years, 1985 to 2050
Global freight transport now exceeds 122 trillion tonne-kilometres* per year. That enormous tonnage/distance has more than tripled since the beginning of the “free trade” era, in the 1980s. And the Organization for Economic Cooperation and Development (OECD) projects that global freight transport tonnage will triple again in the coming generation—rising to 330 trillion tonne-kilometres per year by 2050 (see OECD). To put these trillions into perspective, freight movement will soon surpass 100,000 tonne-kilometres per capita per year for those of us living high-consumption lifestyles, here and around the world.
*Note: a tonne-kilometre is equivalent to moving one tonne one kilometre. If you move 10 tonnes 10 kilometres, that is 100 tonne-kilometres.
A major part of this increase in transport tonnage is related to trade agreements and globalization. As we’ve restructured the global economy we have off-shored our factories. Our washing machines, toasters, rubber boots, TVs, and many of our cars now come from half-way around the world. Our foods and fertilizers are increasingly shipped across continents or oceans. And we ship food, resources, and other goods around the world. Economic growth means we’re consuming more and more; globalization means we’re consuming resources and products from further away. These two trends, together, help explain the tenfold increase in global freight transport depicted in the graph.
Moving this colossal tonnage requires ships, trains, trucks, and airplanes—all of which burn fossil fuels and emit greenhouse gas (GHG) emissions. Emissions from the freight transport sector make up about 10 percent of all man-made CO2 emissions (see OECD). The OECD predicts that if current trends and policies hold, emissions will nearly double by 2050, to 5.7 billion tonnes of CO2 per year (see OECD). This near-doubling of freight transport emissions between now and 2050 will occur at the same time that we are attempting to cut overall GHG emissions by half. It is time to ask the obvious questions: Is our ongoing drive toward globalization (i.e., de-localization and transport maximization) compatible with our emission-reduction commitments and a livable climate? Indeed, as our leaders aggressively sign and implement still more “free trade” agreements (TPP, CETA, etc.) we should consider that perhaps doubling down on globalization vetoes emissions reduction, vetoes a stable climate, vetoes local food, and vetoes local jobs.
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Graph sources: 2015, 2030, and 2050 data from the OECD/ITF page 56. Data for 2000 and 1985 are from various sources: air freight data is from the World Bank. Rail freight data is from the World Bank. Maritime freight data is from the United Nations, Review of Maritime Transport. Road freight data for 2000 is from the OECD. Road freight data for 1985 is an informed estimate.
US and Canadian crude oil prices, historical, 1860-2016
Many corporate spokespeople, government officials, economists, and journalists are repeating a very odd line: “oil prices are low.” Others talk of “cheap oil,” “plunging prices,” and a “crash.” Here’s one example, a 2016 headline from Maclean’s: “Life at $20 a barrel: What the oil crash means for Canada.”
I will argue that talk of “low oil prices” ignores history, misconstrues energy’s role in making civilizations, and confuses our efforts to build resilient, sustainable, climate-stabilizing economies. The graph above and the table below put recent oil prices into their long-term context. The graph covers the 156-year period from the first large-scale production of petroleum oil to the present: 1860 to 2016. It shows US average crude oil prices and Canadian prices for light sweet crude and heavy tarsands crude. For comparability, all figures are in US dollars and adjusted for inflation.
This table helps us interpret the data in the graph by showing average prices for each decade.
Canada and US crude oil prices, decade-averages, inflation-adjusted US dollars
Here’s what the graph and table can tell us about current “low oil prices.”
1. The graph shows that the very high 2003-2014 prices are an anomaly.
2. The $80 average price in the 2010s is the highest since the 1870s.
3. Even with recent declines, oil prices remain above the levels that held during the century from 1875 to 1975.
4. While prices have averaged $80 in the 2010s, the average price in the 1950s, ’60s, and ’70s was below $30. The greatest period of economic growth in global history, the postwar US boom, was accomplished with very cheap oil. As the cost of oil goes up, the cost of civilization goes up. If energy prices rise too high, we may no longer be able to afford to continue to build or even maintain our sprawling mega-civilization.
5. Many say that Canadian prices are particularly low relative to US or world prices. That isn’t the case. It’s not that Canadian oil is priced lower than US oil; rather, Canadian heavy (tar sands) oil is priced lower than US and Canadian light oil. The values in the table show this. The graph also shows this in the close correlation of US average oil prices with Canadian light oil prices. The right-wing think-tank The Fraser Institute explains that heavy oil from the tarsands and similar sources is priced lower because such oil “is more costly to transport by pipeline …. Further, the heavier the crude oil …, the lower its value to a refiner as it will either require more processing or yield a higher percentage of lower-valued by-products such as heavy fuel oil. Complex crudes containing more sulphur also generally cost more to refine than low-sulphur crudes. For these reasons, oil refiners are willing to pay more for light, low-sulphur crude oil.”
6. Western Canadians are particularly sensitive to “low oil prices” because our economy is dependent upon some of the highest-cost oil production systems in the world: the tar sands. We are the high-cost producers.
As the International Energy Agency (IEA) said recently, “Attempting to understand how the oil market will look during the next five years is today a task of enormous complexity.” I certainly cannot predict oil prices. And I’m not advocating lower prices. Just the opposite. As someone deeply concerned by climate change, I hope that oil prices rise and stay high, and that governments impose taxes on carbon emissions to push the cost of burning fossil fuels higher still. Nonetheless, we need to dispassionately interpret the data if we are to have any hope of directing our future and our economy. We need to be able to discern when energy prices are low and when they are not.
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Canadian net farm income and gross revenue, inflation adjusted, net of government payments, 1926–2016.
Canadian net farm income remains low, despite a modest recovery during the past decade. In the graph above, the black, upper line is gross farm revenue. The lower, gray line is realized net farm income. Both measures are adjusted for inflation. And, in both cases, taxpayer-funded farm support payments are subtracted out, to remove the masking effects these payments can otherwise create. The graph shows farmers’ revenues and net incomes from the markets.
The green-shaded area highlights periods of positive net farm income; the red-shaded area marks negative net income periods. Most important, however, is the area shaded blue—the area between the gross revenue and net income lines. That area represents farmers’ expenses: the amounts they pay to input manufacturers (Monsanto, Agrium, Deere, Shell, etc.) and service providers (banks, accountants, etc.). Note how the blue area has expanded over time to consume almost all of farmers’ revenues, forcing Canadian net farm income lower and lower.
In the 23 years from 1985 to 2007, inclusive, the dominant agribusiness input suppliers and service providers captured 100 percent of Canadian farm revenues—100 percent! During that period, all of farm families’ household incomes had to come from off-farm employment, taxpayer-funded farm-support programs, asset sales and depreciation, and borrowed money. During that time, farmers produced and sold $870 billion worth of farm products, but expenses (i.e., amounts captured by input manufacturers and service providers) consumed the entire amount.
Bringing these calculations up to date, in the 32-year period from 1985 to 2016, inclusive, agribusiness corporations captured 98 percent of farmers’ revenues—$1.32 trillion out of $1.35 trillion in revenues. These globally dominant transnational corporations have made themselves the primary beneficiaries of the vast food wealth produced on Canadian farms. These companies have extracted almost all the value in the “value chain.” They have left Canadian taxpayers to backfill farm incomes (approximately $100 billion have been transferred to farmers since 1985). And they have left farmers to borrow the rest (farm debt is at a record high–just under $100 billion). The massive extraction of wealth by some of the world’s most powerful corporations is the cause of an ongoing farm income crisis.
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Global consumption of nitrogen fertilizer and other fertilizers, historic, 1850 to 2015
Last week’s blog post (Feeding the World) showed that farmers worldwide had, since 1950, quadrupled grain production. How is this possible? The answer is fertilizer; more specifically, nitrogen fertilizer. This graph shows global fertilizer use. In 1950, farmers applied less than 5 million tonnes of nitrogen (measured in terms of actual nutrient, not fertilizer product). In 2015, farmers applied more than 110 million tonnes. We managed to increase grain output fourfold largely by increasing nitrogen inputs 23-fold.
Nitrogen fertilizer is a fossil fuel product, made primarily from natural gas. One can think of a modern nitrogen fertilizer factory as having a large natural gas pipeline feeding into one end and a large pipe coming out the other carrying ammonia, a nitrogen-rich gas. To produce, transport, and apply one tonne of nitrogen fertilizer requires an amount of energy equal to almost two tonnes of gasoline. One reason we have been able to increase grain production fourfold since 1950, and human population threefold, is that we found a way to turn fossil fuels into plant nutrients into enlarged food supplies into us. With fertilizers, we can convert hydrocarbons into carbohydrates.
Dr. Vaclav Smil is an expert on the material flows, nutrient cycles, and energy transformations that underpin natural and human systems. He believes that without the capacity to turn fossil fuels into nitrogen fertilizers into enlarged harvests, nearly half the 7.4 billion people now on Earth could not be fed and could not exist. Smil calls factory-made nitrogen “the solution to one of the key limiting factors on the growth of modern civilization.” This blog highlights the many ways humans have managed to remove the limiting factors to the growth of modern civilization.
Finally, 1950 was long ago. Surely rapid increases in fertilizer consumption must have tapered off in recent years. That isn’t the case. Canadian consumption is rising especially rapidly. A look at Statistics Canada data (CANSIM 001-0069) reveals that Canadian nitrogen fertilizer consumption has increased 65 percent over the past decade (2006 to 2016). Like many countries, Canada is boosting food output by increasing the use of energy-intensive agricultural inputs.
Canada and US Gross Domestic Product (GDP), 1900–2016
This graph shows the increasing sizes of the US and Canadian economies. The graph plots US Gross Domestic Product (GDP) on the left-hand axis, and Canadian GDP on the right. The time-frame is 1900 to 2016. The year 2000 is marked with an open circle, to highlight the 20th century. The units are trillions of US or Canadian dollars, and all figures are adjusted for inflation, that is, they are stated in 2016 dollars.
How much did these economies grow during the 20th century? US GDP in 1900 was $0.59 trillion dollars (in today’s US currency). In 2000, GDP was $14.3 trillion dollars—24 times larger. Canada’s economy in 2000 was 45 times larger than in 1900.
We can calculate the average annual growth rate. During the 20th century, the US economy grew at an average compound rate of 3.2 percent. We often hear growth rates of 2 to 3 percent described as normal. Indeed, if rates in the US or comparable nations fall below 2 percent, analysts warn of “slow growth.” Moreover, in recent years there has been consternation as Chinese economic growth rates have fallen from 9 or 10 percent per year to 7.
Can the US and comparable economies grow at rates in the 21st century that were “normal” in the 20th? Even if annual growth slows to an average of just 2 percent, the size of the US economy will increase 7-fold between 2000 and 2100. If the US economy grows at 2 percent per year throughout the 21st century, by 2100 the US economy alone will be more than twice as large as the global economy of 2000.
Growth rates of 2 or 3 percent per year, modest when considered over the short term, will, over several decades, cause an economy to double and redouble in size. Can we multiply the sizes of already-large national economies five- or ten-fold this century? Is it wise to try?
Graph sources: United States GDP: US Deptartment of Commerce, Bureau of Economic Analysis, NIPA Table 1.1.5; and Louis Johnston and Samuel Williamson, “What Was the U.S. GDP Then?” MeasuringWorth, https://www.measuringworth.com/usgdp/ . Canadian GDP: Statistics Canada CANSIM Tables 380-0566 and 384-0037; and M.C. Urquhart, “New Estimates of Gross National Product, Canada, 1870-1926…,” in Long-Term Factors in American Economic Growth, eds. Stanley Engerman and Robert Gallman (Chicago: University of Chicago Press, 1986)
